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2 Words That Will Save Your Retirement

Doing this will take the pressure off your retirement portfolio.

Many people believe that the best way to save for retirement successfully is to make the most money possible from their investments. That never hurts, but there's a simpler way to ensure that you'll be able to make ends meet both now and in retirement, and if you follow it, you'll also put yourself in a much better position for your investments to perform the way you need them to in order to reach your financial goals.

What won't save youI'll get to what those two words are later in this article. But first, I want to talk about some things that you can't count on to get you to a healthier retirement -- at least not by themselves.

One of the things retirement investors do to try to get ahead is to pile into particular sectors. For instance, small biotech companies Exelixis(Nasdaq: EXEL) and Amarin(Nasdaq: AMRN) have huge potential, but they also carry big risk. Although fellow Fool Brian Orelli sees them as prospective takeover targets, they could also have profit potential on their own -- as long as they actually get their blockbuster drugs through the pipeline and gain FDA approval. Without approval, though, similar companies have gone to zero.

You see the same all-or-nothing style bets with oil exploration company ATP Oil & Gas(Nasdaq: ATPG) as well as scandal-ridden Chinese small caps like Advanced Battery Technologies(Nasdaq: ABAT). If a small energy company hits it big, the sky's the limit for the stock, but it could easily go bankrupt without it. And depending on whether allegations over Chinese small-caps are true, shares could soar or plummet.

Similarly, levered sector ETFs like ProShares Ultra Oil & Gas(NYSE: DIG) and Direxion Daily Financial Bull 3x Shares(NYSE: FAS) can make you a fortune if you predict short-term movements correctly. For instance, the ProShares Ultra Silver ETF(NYSE: AGQ) has risen nearly 800% over the past two years thanks to the explosive move upward in silver prices. But over time, levered ETFs can cost you plenty -- even if you prove to be right about your guess on the direction of the respective markets they track.

Concentrated bets can sometimes work if you have special expertise in any area, but putting your entire portfolio at risk is still a bold call. You might get lucky, but you could just as easily lose everything -- and that's a risk most people simply can't afford to take.

Getting blood from a stoneOther advice you often hear from financial planners is to boost your income. But in tough times, you simply can't count on being able to do that. In tough times, many workers are already stretched to the limit in their attempts to try to keep their jobs and maximize their income. Others are desperately searching for more work but have had no success.

Moreover, even during better times, you may just be unable to work any harder than you do. And while taking time off to get more education might eventually lead to higher income, it's tough to make the sacrifice now to get that faraway payoff.

Let these two words save youNo, the best advice for most investors is simple: spend less.

Sure, some people have already cut their budgets to the bone. But I'd wager that if I challenged you to take a close look at your spending over the past several months, you could come up with at least a few areas you could cut back on.

The thing about cost-cutting is that it saves you twice. First, it frees up more money for savings. But more importantly, it also allows you to set more realistic goals for your retirement nest egg -- because if you don't spend as much, you won't need as much money when you retire. That in turn gives you the flexibility to avoid taking huge bets with your money, instead making room for safer all-purpose investments like index ETFs or mutual funds.

The thought of looking at your budget is enough to drive some people to tears. But if you haven't been paying attention to where your money's going, odds are that you'd find some big leaks -- and if you plug them, you'll be able to be a lot more comfortable with your finances.

So to take the pressure off your investments and figure out some ways to spend less. It may be the most liberating thing you ever do with your money.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributorDan Caplingergets a little closer to retirement every day. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of Exelixis, which is aMotley Fool Rule Breakersselection. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policymeans you'll hear way more than two words from all of us.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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